Pandian Chemicals Limited, Madurai V. DCIT Corporate Circle 2, Madurai

MA 208/CHNY/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3784 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 04-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 08-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R ANITA
• Assessee Lawyers: C CHIRANJEEVI RAJ
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER M.P. NO. 208/CHNY/2019 [IN I.T.A. NO. 2826/CHNY/2018] ASSESSMENT YEAR : 2013-14 & [IN I.T.A. NO. 2826/CHNY/2018] M/S. PANDIAN CHEMICALS LIMITED, 17A, VALLABHAI ROAD, CHOKKIKULAM, MADURAI 625 002. [PAN:AABCP6618D] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI. (PETITIONER) ( / RESPONDENT ) / APPELLANT BY : SHRI C. CHIRANJEEVI RAJ, C.A. / RESPONDENT BY : MS. R. ANITA, JCIT / DATE OF HEARING : 18.10.2019 /DATE OF PRONOUNCEMENT : 04.11.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: BY MEANS OF PRESENT MISCELLANEOUS PETITION, THE ASSESSEE SEEKS TO RECTIFY THE ORDER PASSED BY THE TRIBUNAL IN I.T.A. NO.2826/CHNY/2018 DATED 27.06.2019 FOR THE ASSESSMENT YEAR 2013-14. BY REFERRING TO THE PETITION, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN THE GROUNDS OF APPEAL, THE ASSESSEE HAD NOT CLAIMED THAT THE INVESTMENT IN SUBSIDIARY COMPANY IS A STRATEGIC INVESTMENT SO AS TO EXCLUDE IT WHILE CALCULATING THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. BUT IN THE TRIBUNALS ORDER, IT WAS WRONGLY M.P. NO.208/CHNY/19 2 STATED THAT WE HAD CLAIMED EXCLUSION WHILE CALCULATING DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. THIS IS A MISTAKE APPARENT ON RECORD. IT WAS FURTHER SUBMISSION THAT NO BORROWED FUNDS WERE USED FOR BUYING OF SHARES LONG AGO AS COULD BE EVIDENCE FROM THE PAPER BOOK SINCE THE ASSESSEE HAD MORE THAN SUFFICIENT SHARE-HOLDERS FUNDS. NO NEW INVESTMENT HAS BEEN MADE IN THE YEAR UNDER CONSIDERATION SO AS TO INCUR DIRECT OR INDIRECT EXPENSES. THEREFORE, THE NOTIONAL DISALLOWANCE OF .1,05,049/- MADE UNDER SECTION 14A R.W. RULE 8D BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) IS UNWARRANTED AND UNJUSTIFIED. 3. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE MADE INVESTMENT IN THE SUBSIDIARY AND EARNED EXEMPT INCOME. EVEN THOUGH THE DOMINANT AND MAIN OBJECT OF INVESTMENT WAS NOT FOR EARNING OF EXEMPT INCOME, DISALLOWANCE UNDER SECTION 14A OF THE ACT IS WARRANTED. 4. WE HAVE HEARD BOTH THE SIDES, PERUSED THE TRIBUNALS ORDER AS WELL AS PAPER BOOK FILED BY THE PETITIONER. IN THE GROUNDS OF APPEAL, IT WAS THE SUBMISSION THAT THE ASSESSEE HAS INVESTED IN SHARES OF ITS SUBSIDIARY COMPANY THROUGH ITS DEMAT ACCOUNT. AS PER DETAILS FURNISHED IN THE PAPER BOOK, THE SAID INVESTMENT WAS MADE IN THE YEARS 1997-1998, 1999-2000, 2002-03 & 2003-2004 AND EARNED DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. ON A RELOOK OF THE GROUNDS OF APPEAL AS WELL AS SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE, THE ASSESSEE HAS NOT CLAIMED EXCLUSION M.P. NO.208/CHNY/19 3 THAT IT HAS MADE STRATEGIC INVESTMENT IN SUBSIDIARY, WHEREAS, THE TRIBUNAL WAS OF THE OPINION THAT THE INVESTMENT IN SUBSIDIARY IS BEING STRATEGIC INVESTMENT AND THEREBY REJECTED THE CLAIM OF THE ASSESSEE IN VIEW OF THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT 402 ITR 640 (SC), IS A MISTAKE APPARENT ON RECORD. BY ACCEPTING THE SUBMISSIONS OF THE PETITIONER, WE HEREBY RECTIFY THE MISTAKE AFTER HEARING BOTH THE PARTIES ON MERITS AS WELL AS MATERIAL AVAILABLE ON RECORD. 5. IN THIS CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS NOT MADE ANY MAJOR INVESTMENT IN THE ASSESSMENT YEAR UNDER CONSIDERATION EXCEPT .785/- ONLY. SINCE THE ASSESSEE HAS EARNED DIVIDEND INCOME OF .1,07,99,487/- OUT OF INVESTMENTS MADE IN THE EARLIER YEARS, THE ASSESSING OFFICER DETERMINED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D, WHICH WAS CONFIRMED BY THE LD. CIT(A). HOWEVER, WE ARE OF THE CONSIDERED OPINION THAT ONCE THERE IS NO INVESTMENT MADE IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE IS NO QUESTION OF APPLICATION OF RULE 8D(2)(II). FURTHER, THE LD. CIT(A) HAS NOT GIVEN ANY FINDINGS ON THE PLEA RAISED BEFORE HIM THAT FOR THE ASSESSMENT YEAR 2006-07, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED BY THE LD. CIT(A). MOREOVER, IT WAS THE SUBMISSION OF THE ASSESSEE THAT FOR THE ASSESSMENT YEAR 2012-13, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS MADE. OVER AND ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE REVENUE WOULD HAVE MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT M.P. NO.208/CHNY/19 4 AGAINST THE INVESTMENTS IN THE RELEVANT PREVIOUS ASSESSMENT YEARS AND IF IT IS SO, AGAIN DISALLOWANCE AGAINST THE DIVIDEND INCOME RECEIVED NOW ON THE GOOD OLD INVESTMENTS MADE IN THE EARLIER YEARS CANNOT BE MADE. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO VERIFY ALL THE ABOVE FACTS AND DECIDE THE ISSUE AFRESH BY TAKING INTO ACCOUNT THE ASSESSMENT MADE IN THE ASSESSMENT YEAR 2012-13, WHERE, THE ASSESSEE CLAIMS THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS MADE FOR THE INVESTMENTS OF EARLIER YEARS. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE MP FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 04 TH NOVEMBER, 2019 AT CHENNAI. SD/- SD/- (S. JAYARAMAN) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 04.11.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.